The inspiration for this week’s post comes from Pheidippides, who wants to know if he should purchase a long-term care policy. Pheidippides says,
I’m 57, in excellent health (because I do a lot of jogging), but the premiums are like $500 a month!!
Before we answer Pheidippides’s question, let’s do some long-term care insurance 101.
What is Long-Term Care?
Long-term care provides help with daily tasks to those individuals that have lost some, or all, ability to take care of themselves. Long-term care is usually relied upon during our older years. However, the need for long-term care may also arise at a younger age, out of disability or disease.
Long-term care can be either in the form of a home assistant, in the form of residency at a nursing home, or anywhere in between. While Medicare can provide for long-term care services in limited circumstances, there is a maximum of 100 days of coverage. This is problematic because the need for long-term care can last for years.
What is Long-Term Care Insurance?
Long-term care insurance helps manage the high cost of long-term care. The coverage offered by long-term care insurance varies by policy. Some insurance policies will pay a daily benefit amount (such as $200/day) to manage the cost of long-term care. Other policies can pay a benefit to retrofit a home, enabling an individual with a newly-acquired disability to maintain residence in their own home – as opposed to being forced out to an assisted living facility.
Do I need Long-Term Care Insurance?
Now let’s go back to Pheidippides’s question: does he need long-term care insurance? Like all great financial planning questions, the answer is, “it depends.” In determining if long-term care insurance is right for you, let’s review the following questions.
Question #1: Are you rich?
Long-term care insurance exists to help people manage the high-cost of long-term care. If you’re wealthy enough so that managing this cost is a non-issue, then you do not need a long-term care policy. You can afford to self-insure: to cover the costs of long-term care yourself in the event that you need it. One rule of thumb, from consumer expert Clark Howard, suggests $3 million as the tipping point where you could be able to self-insure. However, though you may not need it, long-term care insurance can help you protect your assets.
In the same way that a long-term care policy can help you protect your assets, it can also help protect your inheritance. The children with a pending inheritance may consider paying the premiums on a long-term care insurance policy to protect their inheritance from the expenses of prolonged long-term care.
Question #2: Are you destitute?
If so, then you do not need a long-term care policy. (You would not be able to afford it anyway.) Medicaid will provide long-term care to those with low income and extremely limited assets.
Given the above answers to our first two questions, you may have figured out that long-term care insurance is for those with moderate assets. That is, for those that have enough money so as to not qualify for Medicaid, but still not have enough funds to self-insure.
Question #3: Are you healthy?
If not, then it becomes much more difficult to qualify for a long-term care insurance policy. Waiting until you are no longer healthy to apply for long-term care could make the process cost prohibitive.
Question #4: Is your family tree made up of individuals who required long-term care?
If so, the odds may dictate that you will too require long-term care.
Question #5: Are you female?
If so, data suggests that you are likely to live longer than your male counterpart. At least more so than men, women should consider a long-term care policy.
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If you’re unsure if long-term care insurance is right for you, work with a fee-only financial planner to help you navigate the important variables that affect how you will receive benefits. Without the conflict of interest stemming from the desire to sell an insurance product, a fee-only planner can determine the best solution for your insurance needs.
Bell, F. C., & Miller, M. (2010). Life Tables for the United States Social Security Area 1900-2100. Retrieved from Official Social Security Website: http://www.ssa.gov/oact/STATS/table4c6.html
California Department of Health Care Services. (2014). Do You Qualify? Retrieved from California Department of Health Care Services: http://www.dhcs.ca.gov/services/medi-cal/Pages/DoYouQualifyForMedi-Cal.aspx
Howard, C. (2014). The Clark Howard Podcast: Clark Howard: 08.18.14. Atlanta, GA, USA. Retrieved August 19, 2014, from The Clark Howard Radio Show: Free Podcasts | www.clarkhoward.com: http://www.clarkhoward.com/Player/442134/
U.S. Department of Health and Human Services. (n.d.). Medicare – Long-Term Care Information. Retrieved August 14, 2014, from Long-Term Care Information: http://longtermcare.gov/medicare-medicaid-more/medicare.html